There are several different types of home equity loans. Some can be a better fit than others based on your circumstances, mortgage rates, and what you need the loan for. The NH home equity loan advice offered below will help you evaluate your options.
Different Types of Home Equity Loans
A cash-out refinance pays off your old mortgage and replaces it with a new one. The new mortgage covers the balance of the old loan, the additional equity you are taking out and applicable closing costs. Because you are eliminating the old loan, rather than taking out a new loan as a second mortgage, the rates may be better than a second mortgage. This is essentially a traditional refinance except that you are taking out equity in the property. Those equity funds are given to you all at once. When considering a cash-out refinance, compare the rate of your current mortgage with the new one. If your current rate is higher, then it makes sense to refinance it to a new mortgage with a better rate. Otherwise, you should ask about other options and retain your first mortgage rate.
Home Equity Loan
A home equity loan is a second mortgage in addition to your first mortgage. With this type of loan, you borrow a specific amount that you pay back over a specific amount of time, either at a fixed rate or at one that may increase or decrease at set intervals. Second mortgage rates are traditionally higher than first mortgage rates. They also have settlement costs similar to first mortgages.
Home Equity Line of Credit (HELOC)
A home equity line of credit typically has an adjustable rate that goes up and down with the prime rate. HELOCs are open-ended, so they are similar to credit cards. The lender identifies your maximum credit limit. You can access funds up to your limit and can withdraw in different amounts. Your payment reflects the current balance. As your balance drops, the remaining credit may still be withdrawn. Credit limits may be changed by the lender in reaction to significant changes in the real estate market.
Inquire about annual fees, cancellation fees, and mandatory minimums or withdrawal requirements. Similar to credit cards, HELOCs can be closed by the lenders at any time. This solution may be great if you are uncertain about needing the entire loan. However, keep in mind that the maximum allowed can be reduced, limiting the available funds.
NH Home Equity Loan Advice
All home equity loans are based on the current market value of your real estate and the amount of current mortgages. You can estimate your equity by calling a local real estate consultant for an estimate on its value. Mortgage companies will order appraisals to obtain a more definitive amount before lending you any money. Be careful not to pull out more equity than you really need. Also make sure that the new mortgage payments fit your budget. All home equity loans use your home as a lien, allowing them to foreclose if you are unable to make payments. This NH home equity loan advice is intended as a broad overview. Speak with a local mortgage professional for relevant interest rates, closing costs, and other solutions.